5 - Cash Flow

Question 1

Describe Cash Flow
(2 Points)

Answer 1

~ Amount of money entering and leaving the business.

~ Inflows - Outflows.

Question 2

What Are Cash Flow Forecasts?
(2 Points)

Answer 2

~ Shows the amount of money managers expect to flow into the business and flow out of the business, over a period of time in the future.

~ Negative go in brackets.

Question 3

What Are Cash Inflows?

Answer 3

Cash in from sales or start up loans.

Question 4

What Are Cash Outflows?

Answer 4

Cash out for purchases and payments.

Question 5

How Is ‘Net Cash Flow’ Calculated In A Cash Flow Forecast?

Answer 5

Cash Inflows - Cash Outflows.

Question 6

How Is The ‘Opening Balance’ Calculated In A Cash Flow Forecast?

Answer 6

For a new business month one, will always be 0.

Question 7

How Is ‘Closing Balance’ Calculated In A Cash Flow Forecast?
(2 Points)

Answer 7

~ Net Cash Flow + Opening Balance.

~ Becomes the opening balance for the next month.

Question 8

Work Out This Cash Flow Forecast

Answer 8

Question 9

What Is The Use Of Cash Flow Forecasting For A Business?
(4 Points)

Answer 9

~ Indicates too much cash, or not enough cash.

~ Anticipates cash flow / liquidity issues.

~ Ability to manage cash flow issue.

~ Informs need for sources of finances, decision making and expansion.

Question 10

What Are The Problems Of Cash Flow Forecasting For A Business?
(2 Points)

Answer 10

~ Isn’t always accurate, can be based on assumptions.

~ Circumstances within and around the business can change.

Question 11

Why Does Poor Cash Flow Happen?
(4 Points)

Answer 11

~ Poor sales.

~ Over trading, buying too much stock, which you might not sell.

~ Poor receivables and payables management.

~ No cash flow forecasting, due to poor management.

Question 12

What Are The Problems Of Poor Cash Flow?
(3 Points)

Answer 12

~ Not enough cash to pay day to day expenses.

~ Cannot pay wages, having further negative impacts.

~ May deter creditors, from working with you.

Question 13

What Are Ways A Business Can Improve Its Cash Flow?
(4 Points)

Answer 13

~ Decrease cash outflows, by reducing amount of stock held, moving towards JIT.

~ Rescheduling payments, by getting a longer payable days and a reduce receivables days.

~ Increase cash inflows, raising price.

~ Use sources of finance, such as overdrafts.

Question 14

What Are Difficulties When Improving Cash Flow?
(4 Points)

Answer 14

~ Sources of finance, may be expensive and decrease credit rating.

~ May damage reputation.

~ Costly and time consuming.

~ May affect competitiveness.